Beijing allows bank clients to buy overseas stocks The central government has allowed mainland investors for the first time to buy overseas equities through commercial banks. The long-awaited move will provide a significant boost to the Hong Kong stock market as the local bourse appears to be the sole beneficiary in the short term. The China Banking Regulatory Commission announced yesterday that mainland banks could now invest clients' funds in stocks and other structured products overseas through the Qualified Domestic Institutional Investor (QDII) scheme. Hong Kong will be the initial beneficiary of the move as the city's regulators are the only ones to have signed the necessary memorandums of understanding (MOUs) with mainland regulators. The scheme will allow mainlanders to invest in other overseas stock markets, including London and New York, once the necessary MOUs are signed. The mainland launched the QDII scheme last June but the response was lukewarm, partly because the banks could offer only fixed-income related products from overseas markets. Expectations of the yuan's further appreciation and the booming mainland stock markets also dampened demand for overseas investment. While a QDII quota of about US$14 billion has been granted to banks, only 3 per cent has been used. Under the expanded scheme, mainland banks can invest up to 50 per cent of each QDII fund in equities, and investment in any single stock should not exceed 5 per cent of the total fund. Each investor buying overseas stocks through QDII funds must invest a minimum of 300,000 yuan. Through the scheme mainland investors will also be allowed to buy investment funds abroad, including equity and non-equity funds. After years of lobbying the central government, Hong Kong officials and investment professionals welcomed the announcement, calling it 'a win-win' for Hong Kong and the mainland. 'The introduction of these measures will ... fully utilise Hong Kong's advantages as an international financial centre to develop a mutually supportive, complementary and interactive relationship between the financial systems of the mainland and Hong Kong,' acting Financial Secretary Stephen Ip Shu-kwan said. Monetary Authority chief executive Joseph Yam Chi-kwong, who has been lobbying for the move since 2001, hailed the decision as a significant step in the relationship between the financial systems of the mainland and Hong Kong. 'Through very close supervisory co-operation with the mainland, Hong Kong provides a robust platform for the orderly outflow of funds from the mainland,' he said. Analysts said yesterday the move was part of the central government's efforts to encourage mainlanders to invest overseas to ease the growth in its foreign exchange reserves, which stand at more than US$1.2 trillion, and relieve pressure for the yuan to appreciate faster. The move is also aimed at helping mop up excess liquidity in the mainland's financial system, which has fuelled the phenomenal growth in mainland stock markets. Hong Kong Securities Professionals Association chairman Christopher Cheung Wah-fung believes the Hong Kong blue chips and H shares will be a popular choice for inclusion in the new QDII products as they are now trading at a discount to A shares. Taifook Securities group managing director and chief executive Peter Wong Shiu-hoi said the expansion of the QDII was a good move for both the mainland and Hong Kong. 'The A-share markets have been overheated, so mainland investors would like to invest in the H shares in Hong Kong, which are trading at a discount to the A shares in Shanghai,' Mr Wong said. 'Overseas investment will also allow mainlanders to diversify their risks. There will also be more arbitrage between the two markets.'